Exam 4: Reporting and Analyzing Merchandising Operations

A company that uses the gross method of accounting for purchases and a perpetual inventory system purchased $8,500 of merchandise on March 25 with credit terms of 2/10, n/30. The invoice was paid in full on April 4. Prepare the journal entries to record the transactions on March 25 and April 4.

Distinguish between selling expenses and general and administrative expenses.

Under the gross method, if companies using a perpetual inventory system do not take advantage of purchase discounts, a Discounts Lost account is debited at the time of payment.

A company's quick assets are $147,000 and its current liabilities are $143,000. This company's acid-test ratio is 1.03. Acid-Test Ratio = Quick Assets/Current Liabilities Acid-Test Ratio = $147,000/$143,000 = 1.03

On March 12, Klein Company, Inc. sold merchandise in the amount of $9,800 to Babson Company, with credit terms of 1/10, n/30. The cost of the items sold is $5,500. Klein uses the gross method of accounting for sales and a perpetual inventory system. Babson pays the invoice on March 17, and takes the appropriate discount. The journal entry that Klein makes on March 17 is:

If a buyer of goods that uses the net method of accounting for purchases fails to take an early payment discount offered by the seller, the amount of the discount not taken is recorded by the buyer as a debit to __________________.

Sales less sales discounts less sales returns and allowances equals:

A company has net sales of $752,000 and cost of goods sold of $543,000. Its net income is $17,530. The company's gross margin and operating expenses, respectively, are:

Describe the recording process (including costs) for the types of transactions associated with sales of merchandise inventory using a perpetual inventory system and the gross method of accounting for discounts.

On March 12, Masterson Company, Inc. sold merchandise in the amount of $7,800 to Forsythe Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Masterson uses the gross method of accounting for sales and a perpetual inventory system. On March 15, Forsythe was given an allowance of $600 on defective merchandise that had a cost of $350. Forsythe pays the invoice on March 20, and takes the appropriate discount. The journal entry that Masterson makes on March 20 is:

New revenue recognition rules that apply to public entities for annual periods beginning after December 15, 2017 require sellers to report sales net of expected sales discounts in the income statement.

When a company preparing a multiple-step income statement has no reportable non-operating activities, its income from operations is simply labeled net income.

Sales returns:

A company had net sales of $752,000 and cost of goods sold of $543,000. Its net income was $17,530. The company's gross margin ratio equals:

A company using the gross method of recording purchases and a perpetual inventory system failed to take advantage of a discount available. When it pays the amount of the invoice at the end of the credit period, the journal entry will include a debit to:

A merchandiser's classified balance sheet reports Merchandise Inventory as a current asset.

Credit terms for a purchase include the amounts and timing of payments from a buyer to a seller.

On September 12, Vander Company, Inc. sold merchandise in the amount of $5,800 to Jepson Company on credit with terms of 2/10, n/30. The cost of the items sold is $4,000. Vander uses the gross method of accounting for sales and a periodic inventory system. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Vander makes on September 18 is:

What does the acronym FOB stand for? Describe the differences between FOB shipping point (also called FOB factory) and FOB destination.

Harley's Antique Shop, Inc. had net sales of $772,000. The gross profit was $415,000. Calculate Harley's cost of goods sold.